How Much Do You Need to Save for Retirement?

We hope the answer will calm you.

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Updated on Oct 15 2019

It’s one of the questions we hear most often, and rightfully so: Am I saving enough for retirement?

The answer, of course, is: it depends. Lots of factors come into play, including how much income you’ll need, whether you’re entitled to Social Security and/or a pension, your health and life expectancy, and your attitude about inheritances for a spouse/partner, children or others.

Typically, after analyzing the situation, we discover that people need to amass savings of 15 to 25 times their current annual income. For this discussion, let’s use the midpoint of 20x. On that basis, it would seem that someone earning $100,000 a year would need to accumulate $2 million.

That’s a shocking amount.

Only it isn’t — and here’s why. If you’re married and will receive combined retirement benefits from Social Security of $40,000, you won’t need to amass enough savings to generate that entire $100,000. Instead, you’ll need only $60,000. And 20 times that is just $1.2 million — a goal that's much easier to achieve.

Factoring in Social Security and Pensions

If you’re due a pension in addition to Social Security, that target amount is even less. And it's less still if you plan on earning part-time income after you retire; even $10,000 a year can make a huge difference. As can deciding that you can afford to live on less than what you’re currently spending. Finally, deciding that you don’t need to leave millions of dollars to heirs further reduces the amount you need to accrue by retirement.

For all these reasons, the situation might not be nearly as dire as you think.

So, that range of 15x to 25x is merely that — a range. To get your specific answer to that important question — Am I saving enough for retirement? — there is no substitute for consulting a professional financial planner. When we review your entire situation, we’ll be able to tell you if you need to generate savings of 25x of your current income — or only 3x.

At Edelman Financial Engines, we routinely perform this important calculation for our clients. And we can do it for your family and friends too.

1The 2019 Top 50 Independent Advisory Firm Ranking issued by Barron’s is qualitative and quantitative, including assets managed, the size and experience of teams, and the regulatory records of the advisors and firms. Firms elect to participate but do not pay to be included in the ranking. Investor experience and returns are not considered. The 2018 ranking refers to Edelman Financial Services, LLC, which combined its advisory business in its entirety with Financial Engines Advisors L.L.C. (FEA) in November 2018. For the same survey, FEA received a precombination ranking of 12th.

2InvestmentNews ranking and status for 2019. For independence methodology and ranking, see InvestmentNews Center.

3The Financial Times 300 Top Registered Investment Advisers is an independent listing produced annually by the Financial Times (June 2019). The FT 300 is based on data gathered from RIA firms, regulatory disclosures and the FT’s research. The listing reflected each practice’s performance in six primary areas: assets under management, asset growth, compliance record, years in existence, credentials and online accessibility. This award does not evaluate the quality of services provided to clients and is not indicative of the practice’s future performance. Neither the RIA firms nor their employees pay a fee to the Financial Times in exchange for inclusion in the FT 300.

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